Consumers expecting big savings from the National Association of Realtors’ group settlement on agent commissions may instead be disappointed.

The deal drew plaudits from President Joe Biden, who said it “could save home buyers and sellers up to $10,000” in one instance, and former Treasury Secretary Larry Summers, who said breaking up the “realtor cartel” could save US households $100 billion over time. But the real benefits remain unclear, especially for first-time buyers who need help the most.

It comes at an uncertain time for the housing market, with higher mortgage rates pushing sales last year to the lowest level in nearly three decades. It’s especially difficult for first-time buyers looking to jump into one of the most unaffordable markets in history. In theory, the agreement could lead to lower house prices by reducing commissions. But experts say that’s not a given, especially in the short term.

“No seller I’ve ever met is going to lower the price just because their deal price has gone down,” said Steve Murray, senior adviser to data provider and consultant Real Trends. “That’s not going to happen.”

NAR said in a statement in response to Biden’s remarks that the commissions were already under negotiation before the settlement agreement and would continue to be.

“Real estate agent commissions are determined by the market and are not the cause of the affordability crisis,” NAR said.

How the changes occur and affect the market is a matter of heated debate, in part because no one really knows.

The decades-old system of how US agents are compensated has long been controversial. Sellers typically pay their agent a commission of 5% or 6%. The listing agent then splits the money with the buyer’s representative. Critics say the structure increases costs and creates perverse incentives.

In October, a Missouri jury returned a $1.8 billion verdict that found NAR and others responsible for colluding to keep prices high. To resolve that case and others, NAR agreed earlier this month to pay sellers roughly $418 million and said it would change some of its rules. In the most significant change, the trade group will bar sellers from including compensation details on the multiple listing service, which has long been the most important tool for marketing homes.

That change, which should go into effect this summer after court approval, could encourage sellers to negotiate lower commissions. But the industry is rife with speculation that agents will find ways to negotiate commission splits through other methods, such as on brokerage websites.

“I expect commissions to decline to 4% to 5% over time with variations based on home prices and geography,” said Moody’s Analytics Chief Economist Mark Zandi. “It’s a significant change, but it’s likely to be gradual. I expect most of the profit will be captured by the seller, so the impact on house prices will be small.”

Possible results

The agreement was a hot topic at the American Real Estate Society’s annual gathering of academics in Orlando this week. Ken H. Johnson, a real estate professor at Florida Atlantic University and a former realtor, was in attendance, brainstorming the possible outcomes with colleagues.

Even the question of who benefits from lower commissions — the buyer or the seller — has no simple answer, he said. In theory, the seller should pass on some savings to the buyer, but perhaps not as much in a seller’s market.

And that could encourage more first-time homebuyers, who sometimes lack the money to pay realtors up front, to go it alone, according to Johnson. More buyers are likely to go directly to listing agents to avoid paying commissions. But this can lead to more agents with potential conflicts of interest representing the buyers and also the sellers paying them.

“Now some buyers will have to pay out of pocket or maybe buy cheaper homes,” Johnson said.

Another huge question hangs over the industry. The Justice Department took aim at commission sharing, arguing for a complete separation of compensation for sellers’ and buyers’ representatives. It remains to be seen whether the NAR settlement satisfies regulators.

New rules

Agents are already adapting to the new rules under the proposed agreement. In New York, realtor Keith Burkhardt is working on a new flat-rate service to provide help with property appraisals, negotiating deals and navigating the city’s co-op and condo boards. He believes pricing will be critical and estimates charging buyers between $5,000 and $7,500.

Meanwhile, buyers’ agents will also have to work harder to explain how they will add value to each transaction, according to Iain Phillips, a California real estate agent.

The agreement is a start, said Larry Summers, a paid contributor to Bloomberg Television Wall Street Week with David Westin. But most observers don’t expect huge changes to happen overnight.

“Right now, everybody is turning that solution into what they want it to be,” said Mike DelPrete, who teaches real estate technology courses at the University of Colorado Boulder. “Some people say not much will change. Others want the story to be that this is a seismic shift for the industry. The whole thing is driven by fear and uncertainty.”

— With assistance from Jennifer Epstein, Paulina Cacchero and Chris Anstee

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *